The easy answer to whether Shopify will solve Amazon’s antitrust issue is no, but the more nuanced answer is hmm. Amazon\’s FTC investigation does not challenge the giant\’s behavior in the ecommerce retail sector. While Amazon is clearly the market leader, Walmart, Target, Best Buy and others are close competitors.

The People Want to Know

The Amazon antitrust challenge currently under consideration encompasses third-party merchants who sell on Amazon. The inquiry assumes that Amazon is an essential conduit between the merchant and the consumer, but then questions how in that role, the retailer exploits vendor data and, in some circumstances, uses it to compete against them. If Amazon has tired of those pesky questions from Congress, capitalism may come to the rescue.

[callout]Amazon purchased the small Australian-based company SELZ which, like Shopify, creates a software platform for merchants to set up and support ecommerce businesses. Despite the company\’s deep-pocked defensive play, if Amazon is hoping to stem the tide of defections, it may need to address the core problems causing its suppliers to look elsewhere[/callout]

Shopify’s Value Proposition

Shopify is neither a discovery platform nor a retail competitor, but rather a service provider to ecommerce sellers. While Amazon\’s north star is customer delight, Shopify\’s is merchant satisfaction. Shopify has fortified its merchant services including integration with the leading social platforms where consumers are increasingly heading for discovery. Facebook, Instagram, TikTok, Snapchat, Alibaba and Pinterest interface with the Shopify sales, fulfillment, and (in most cases) payment platforms. Shopify CEO Tobi Lütke\’s famed mantra is \”Amazon is an Empire, and Shopify is arming the rebels.\” And the ranks of the rebels are growing. Amazon\’s third-party sales from Black Friday topped $4.8 billion, but according to WSJ.com, Shopify rang up $5.1 billion in aggregate sales. Ben Thompson, the author of the tech newsletter Stratechery, referred to Shopify as a member of the “Anti-Amazon Alliance.”

Amazon on Notice

One should never underestimate Amazon\’s ability to respond to a threat. As Shopify chips away at Amazon\’s supplier base, the leader is fighting back. In December 2020, WSJ.com reported on a secret effort inside Amazon labeled, \”\’Project Santos\”, reportedly to, \”copy Shopify\’s business model.\” In February Amazon announced the purchase of the small Australian-based company SELZ which, like Shopify, creates a software platform for merchants to set up and support ecommerce businesses. Despite the company\’s deep-pocked defensive play, if Amazon is hoping to stem the tide of defections, it may need to address the core problems causing its suppliers to look elsewhere.

What Matters to Amazon?

• Most of the merchandise that makes Amazon \”The Everything Store\” is supplied by third-party sellers.
• Statista.com estimates that as of Q-4 2020, third-party sellers accounted for about 55 percent of the commercial activity on Amazon.com. The company takes an approximated 30 percent bite of each sale. In return, merchants gain access to the leading ecommerce discovery channel and the consumer halo provided by Amazon\’s commitment to customer satisfaction.

The Challenge of Being Nonessential

Despite the high fees, which have risen from 19 to 30 percent in the last five years, sellers recover sufficient value from the exchange. That changed when Amazon closed its warehouse and fulfillment centers to nonessential merchandise in the early days of the pandemic, essentially bringing these businesses to an abrupt halt. Several third-party merchants turned to Shopify by necessity. There they found a discovery void that needed to be addressed, but far lower costs. In contrast to Amazon\’s 30 percent, Shopify charges a monthly sum of between $29 to $299 (depending on business size) per month, a 2.9 percent fee, plus 30 cents per transaction. The fees provide Shopify software and support, simplifying the process of creating and operating a customized online shop. Shopify is adding warehouse fulfillment centers throughout the United States as part of an announced $1 billion expansion.

Shopify’s Edge for Merchants

Shopify merchants own their data, a critical differentiation between the platforms. In an interview with Molly Wood of Marketplace Tech, Shopify President Harvey Finkelstein explained, \”We only aggregate data in macro trends because each of those businesses is independent…We are only successful when our merchants are successful, we empower our merchants to own their customers, not rent them from marketplaces.\” He stressed that Shopify\’s merchants compete within the market, but never against the platform. Shopify holds a specific position in the value chain as both the skeletal and circulatory system for its vendors while the vendors maintain complete control of the brand\’s identity, data, and presentation.

The Role of Social Commerce

Shopify\’s rise dovetails with that of social commerce. Consumer insights specialist eMarketer forecasts a 34.8 percent increase in social commerce in 2021 on top of a 37.9 percent jump in 2020. In addition to a suite of social platform integration apps, Shopify is broadening its social commerce payment functionality. Shop Pay, the platform\’s one-click payment option allows in-platform purchasing on TikTok, Facebook, Instagram, Alipay, and Snapchat. The integration is seamless, and the sale is completed without leaving the social channel. Shop Pay can further reduce an area of social commerce friction. A Bizrate Insights survey concluded, \” 42.3 percent said they didn’t trust social media platforms with their payment information.\”

Fraud Detection

Amazon is not the only one noticing Shopify\’s success, criminals are quick to exploit Shopify\’s low barrier to entry. A simple background search often results in numerous claims of fake storefronts charging for nonexistent merchandise, consumers who were duped, and issues that Amazon, eBay, and other third-party retail platforms have been battling for years. Shopify has added fraud protection services aimed at protecting merchants, but rogue sellers can simply create a storefront supported by the platform, and market themselves as proper merchants. Harvey Finkelstein has been asked this question in numerous interviews, his consistent response is that Shopify regularly takes down fraudulent sellers, but they depend primarily on customers identifying the offenders. Because Shopify is an intermediary, the platform is not responsible for customer loss, which falls to the credit card companies.

Capitalism Rests its Case

Despite the occasional pitfall that plagues ecommerce, Shopify\’s annual revenue continues to strengthen. The merchant base ranges from micro-retailers to Allbirds, Kylie Cosmetics, Herschel Supply Company, Bombas, Nescafe, The New York Times shop, Rebecca Minkoff, and Tesla. Amazon.com is battling for dominance against the Canadian challenger, but as more retailers shift their businesses to Shopify, the evidence of Amazon\’s anti-competitive lock on third-party seller services weakens. This may take the government some time to recognize, but it is plausible to think that Amazon\’s legal team is concealing a smile underneath their masks as the retail giant\’s singular grip on these critical merchants could be slain by pragmatic capitalism rather than government action.